When approaching wealth managers for investment management, high-net-worth (HNW) individuals are more likely to opt for discretionary mandates over other services, according to financial services research firm Verdict Financial.
According to a Verdict’s 2016 Global Wealth Managers Survey, 52% of millionaires’ investable assets are managed on a discretionary basis globally but the level of interest in such services varies significantly between markets.
Verdict Financial acting head of wealth management Bartosz Golba said: “HNW individuals in Singapore, the UK, and the US have an average of more than 70% of their portfolios placed in discretionary mandates – the highest share across the globe. These are all developed markets, where the uptake of discretionary asset management is generally higher than in emerging economies.
“Such services are a perfect match for clients lacking the time and expertise to manage their investments, both major factors driving demand for discretionary mandates. However, trust plays an important role as well. Investors will be skeptical about giving up control over the investment decisions to advisors they do not know well and do not have a relationship with.”
Golba added that established wealth managers will try to leverage their relationships with existing clients to increase mandates penetration.
“Discretionary services offer higher profit margins than advisory propositions. In this way, growing mandates penetration is at the center of many providers’ strategies, one example being Citi Private Bank, particularly in the Asia-Pacific region. For players with large client books, moving assets to mandated services might prove an easier way to grow revenue than competing for new clients,” Golba explained.
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The research also found that discretionary portfolio managers will also experience competition from digital providers, which have traditionally been conceived as appealing mostly to self-directed investors.
Golba continued: “Wealth managers in developed markets have started to lean towards the view that digital players no longer compete only for execution-only business. Indeed, in Europe many providers dubbed ‘robo-advisors’ offer a discretionary investment management service. They have clear fee structures which appeal to price-sensitive clients, though the lack of a recognized brand remains their primary handicap.”